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Oil Falls Toward Four-Week Low on Stronger Dollar

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02/11/2019 | 05:08 pm

By Dan Molinski and Christopher Alessi

-- Oil prices fell toward a four-week low Monday due to a stronger dollar and simmering concerns over a U.S.-China trade fight that could hurt the global economy and reduce oil demand.

-- West Texas Intermediate futures, the U.S. oil standard, were down 1.8% at $51.78 a barrel on the New York Mercantile Exchange. That puts prices on track for the lowest close since Jan. 14, when they closed at $50.51 a barrel.

-- Brent crude, the global oil benchmark, was trading down 1.3% at $61.28 a barrel on London's Intercontinental Exchange.


Dollar: Oil prices fell nearly 5% last week, marking the biggest weekly decline since late December, and a key culprit was a surging dollar due to a very strong U.S. jobs report on Feb. 1. Oil, like many commodities, is bought and sold in the U.S. currency, so oil prices often move in the opposite direction of the dollar. The WSJ Dollar Index was extending its gains Monday in New York, rising 0.3%.

"The US dollar is strengthening again today in spurring much of today's early WTI weakness," said analysts at Ritterbusch and Associates in a research note. "WTI appeared much more willing to follow equities lower than higher last week with the strength in the U.S. dollar evolving as the decider in pushing WTI values back to below our expected $53 support in forcing us off of a bullish and into a neutral camp."

U.S.-China Trade: Oil also continued to be pressured lower due to worries that negotiations for a U.S.-China trade deal may not happen as quickly as initially expected. "Trade talks are the main issue for oil," said Phil Flynn at Price Futures in Chicago, noting that oil prices fell last week when White House economic adviser Larry Kudlow told Fox Business the U.S. and China are still miles apart on a trade deal. "While that comment may be just a negotiating tactic, the market took it seriously and went on to post its worst week of the new year." Mr. Flynn added.


Mixed Messages: Oil prices are "still trying to figure out what lead to follow. On the one hand, there is the OPEC+ cut story, now coupled with increasing issues around Venezuelan supply, and a global equity market that is still pretty close to the rebound highs set over the last two weeks," analysts at consulting firm JBC Energy wrote in a note Monday. "At the same time," they added, "it has to be argued that a lot of the economic data that has been released over the last few days has really not been too encouraging, and U.S.-Chinese trade talks are also seemingly not progressing very fast."

OPEC: The oil cartel's latest plan to curb output should help to rebalance the market within the first quarter of this year, United Arab Emirates oil minister Suhail al-Mazrouei reportedly told al-Arabiya television Monday. OPEC and 10 producers outside the cartel, including Russia, agreed late last year to collectively hold back crude output by 1.2 million barrels a day for the first half of this year, part of an effort to rein in a burgeoning supply glut and boost prices. As a result, OPEC has "reduced exports in January sharply, tightening the physical market," according to Martijn Rats, oil analyst at Morgan Stanley.


-- The U.S. Energy Information Administration releases its monthly Short Term Energy Outlook on Tuesday.

-- OPEC releases its monthly oil market report on Tuesday, followed by that of the International Energy Agency on Wednesday.

Write to Dan Molinski at Dan.Molinski@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

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